Having broken through a long-held resistance level to an eight-year high last week, GBP/EUR promptly dropped by more than 1% at the end of the week and a similar amount against the US dollar.
The gain midweek had been prompted by the European Central Bank (ECB) cutting its main interest rate from 3.25% to 3%. Europe faces a barrage of problems, not least of which is the threat of tariffs from the USA next year. Sterling, still with the Bank of England (BoE) holding interest rates at 4.75%, seemed to look a better bet for investors, but the mood turned against it in the end.
Although the chance of the BoE following suit on rates this week is only put at around 10%, there is plenty of data for them to change their opinion before Thursday. The last full working week of 2024 is nothing if not busy.
Later this morning we will hear the Purchasing Managers Index (PMI) from all the major western economies, starting with France and German shortly, then the UK at 9.30am. Anything above 50 represents overall optimism among business leaders but there are few predictions of any thing like that
There’s a warning of what the mood in the UK may be from the trade group Make UK, this morning, which found manufacturers’ business confidence at its lowest ebb since spring 2020. “While overall conditions had begun to gradually improve during the year, the Budget has brought this to a shuddering halt,” said a spokesperson, blaming the National Insurance rise.
One surprising bright spot for the economy appears to be the buy-to-let market, with the rise in the surcharge paid by buyers of second homes and investors going up from 2% to 5% being no deterrent, according to analysis by the estate agency Hamptons.
Tomorrow we will hear unemployment and earnings in the UK and on Wednesday it’s the turn of inflation – with a small uptick expected – ahead of the interest rate decision on Thursday.
Before that we will hear the US Federal Reserve’s own decision, expected to be a cut of 0.25%. The US has a hefty week for data too, starting with retail sales tomorrow (with some Black Friday data) and then GDP on Thursday, expected to show a small fall to 2.8%.
China has just released retail sales data, showing a sharp drop from 4.8% to 3%, way below expectations.
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